Dec. 3 (Bloomberg) -- Olam International Ltd., a commodity
supplier backed by Singapore’s Temasek Holdings Pte, plans to
set up a $200 million sugar-refining venture at a port in
Nigeria to tap growing demand in the nation.

Olam will have an 80 percent stake in the operation with
the Lababidi Group, an African company with interests ranging
from wheat milling to port real estate, holding the rest. Half
the investment will be debt-funded, with the remainder
contributed by each partner in line with their equity, Olam said
today in a Singapore stock exchange statement.

Olam is banking on Nigeria, Africa’s second-largest sugar
consumer, maintaining demand that’s grown at an annual average
of 4.2 percent in the last six years to 1.6 million tons in 2009.
Nigerian sugar use may jump to as much as 2.2 million tons in
2013 or 2014, while the state’s 44 percent duty on imports of
the refined sweetener favors local output, Olam Chief Executive
Officer Sunny Verghese said.

“There’s a very good chance we’ll even increase our
capacity” in the Nigeria venture three to four years after Olam
brings the 450,000-ton project on line in 2013, Verghese said
today on a conference call.

The project will combine land on Tincan Island, Lagos, with
the port concession rights of Lababidi. Work to reclaim three
hectares of land and port development will help Olam with
imports of other produce such as wheat into Nigeria, offsetting
costs in other units, Verghese said.

Global sugar supplies are set to fall short of demand for a
third consecutive year after bad weather damaged crops in some
of the biggest producing countries, Czarnikow Group Ltd. said
on Nov. 29. The deficit may be 2.8 million tons for the 12
months through September 2011, according to the London-based
broker.

Sugar consumption will jump to 200 million tons by 2020,
according to Lindsay Jolly, a senior economist with the
International Sugar Organization. The organization estimates
demand will rise 2 percent a year for the next decade.

The sugar for the refinery, with a daily capacity of 1,500
tons, will be sourced mainly from Brazil for sale in Nigeria and
other West African nations, Olam said. Among potential local
buyers would be PepsiCo Inc. and Coca-Cola Co.

Nigeria’s two rival sugar refiners, with about 1.2 million
tons in capacity in total, may bring another 450,000 tons on
line by the time Olam begins its project mid-2013, Verghese said.

Positive Impact

“The venture will have a positive impact, but I doubt that
it will stand out in terms of earnings across Olam group as a
whole,” Ben Santoso, an analyst with DBS Vickers Securities,
said by phone.

The Nigerian venture’s operating costs are forecast by Olam
at about $40 per ton, which the company estimates to be 20
percent below costs at current facilities in Nigeria. The new
plant may provide a 38 percent internal rate of return on equity.
It will also operate with a 27 percent margin of earnings before
interest, tax, depreciation and amortization over sales, Olam
said. That compares with a 5 percent Ebitda margin for the group
as a whole last year.

The Singapore supplier is entering into the venture less
than a year after buying Lababidi’s Crown Flour Mills. Olam has
held preliminary talks with “our core banks” on raising the
loans for the sugar refinery and may involve Nigerian lenders in
the deal, Verghese said.

Olam rose 3.3 percent to S$3.17 by 2.45 p.m. local time on
the Singapore exchange. Shares have gained 19.2 percent this
year, compared with a 10.6 percent gain in the benchmark index.